A Union budget for the village

Government must address the stress in the rural economy, seen in falling wages and incomes, which could reverse recent progress in rural areas

One of the strongest indicators of the distress in the rural economy and among the poor is the wage rate growth.

Last year in February, Prime Minister Narendra Modi had exhorted voters to vote for his party in the Delhi assembly election, claiming that his victory in the general election had brought luck to the country. Unfortunately, the voters of urban Delhi were not convinced and the BJP received a drubbing. The situation in rural India is no different, judging by the election results of the least urbanised state of Bihar some months ago.

That the economy is in crisis is no longer a matter of speculation. All indicators, except the mysterious GDP growth estimates of the Central Statistical Office, have been pointing to the worsening of the economy. Not to be left behind, even the Sensex was trading at its lowest since the government took over. The declining export figures
and falling manufacturing numbers confirm what was already known to most people tracking the economy. The worst hit in this national crisis are the poor and vulnerable in rural areas. The rural economy has been under stress. But the extent and long duration of the distress have surprised many. To be fair, a large part of this has been due to the slowdown in the global economy and the corresponding fall in prices of most primary agricultural commodities. The back-to-back droughts — only the third instance in the last hundred years — haven’t helped the situation. While luck has certainly not been on the side of the rural poor who voted overwhelmingly to bring the NDA to power in 2014, a large part of the blame must be shouldered by the government for not only ignoring the warning signs but also aggravating an already fragile situation in rural areas.

The failure of the government was evident not only in its denial of the existence of a crisis in rural areas but also the cutback in funding for most rural programmes in the last budget. The worst cutbacks were reserved for agriculture and rural areas, with reduced spending on some crucial interventions such as the Rashtriya Krishi Vikas Yojana and the winding up of the Backward Regions Grant Fund. This was accompanied by reduced expenditure on irrigation schemes, such as the Integrated Watershed Management Programme and Accelerated Irrigation Benefits and Flood Management Programme. As if these direct cuts were not enough, the sharp reduction in expenditure on other programmes and the neglect of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) meant that whatever little support rural areas were getting in terms of public expenditure also dried up. There is a massive demand for MGNREGA work but the sudden awakening of the government in the last few months
is certainly too late and too little.

The farmer was not only worried about falling output prices but also the increase in input prices and the non-availability of crucial inputs such as fertilisers. The price of diammonium phosphate had increased from Rs 10,000 per tonne in 2010 to Rs 25,000 per tonne by 2014. A similar increase has been seen in the case of the open-market urea price. This, coupled with shortages in urea and complex fertilisers, has meant that even basic inputs have been out of reach for average farmers. With the government using the opportunity of falling petroleum prices to shore up revenues by raising excise on petroleum products, even a significant reduction in diesel prices did not materialise for farmers.

The distress is now evident to anybody who has been tracking the rural economy. While this is obvious in the case of farmers, given the rise in farmer suicides across states, the worst sufferers are casual agricultural as well as non-agricultural labourers. One of the strongest indicators of the distress in the rural economy and among the poor is the wage rate growth. The latest data from the Labour Bureau suggests that the wages of unskilled casual workers have declined in real terms between November 2013 and November 2015 by 2.14 per cent per annum. This is the first time in the last five decades that the wages of casual workers in rural areas have declined in real terms. Part of the reason for this decline is the worsening of the agrarian situation. But it has also been aggravated by lack of demand from the non-agricultural sector. The last five years before 2013 had seen a sharp rise in wages in real terms, at 6 per cent per annum, driven by rising rural demand and also an increase in government spending in different forms. Rural areas have not only seen an unprecedented slump in demand — this can be gauged by the fall in two-wheeler and durables sales — but they have also been hit by the decline in employment generation through public programmes.

The extent of stress in the rural economy is not just about wages and incomes. It is about making the rural economy an engine of growth — and also making growth inclusive. Falling incomes are not only going to hurt the economy in the short run. They will also likely reverse the process of development in rural areas that had been seen
in terms of rising access to education, particularly among women, and nutrition. Unfortunately, there has been no recognition of the extent of distress in the rural economy, let alone concrete measures to correct it. While an increase in financial spending will certainly be required to revive sagging rural demand, the situation also requires political commitment to make growth inclusive. It may not be too late to do so, but the government should keep in mind that luck favours the brave. For this government, the time to take brave decisions is now.

The writer is associate professor, Centre for Economic Studies and Planning, JNU, Delhi